Why Credit Scores Affect Life Insurance Premiums

Credit Scores Affect Life Insurance Premiums
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    Can credit scores affect life insurance premiums? Your credit history can provide the best life insurance companies a little insight into your “financial health.” They want to get an idea of how you handle your financial responsibilities.

    Your credit score can show insurers if you have a greater likelihood of repaying a loan or not. Companies try to connect the dots and evaluate your overall risk to them before they offer you a policy to buy. Their main objective is finding out how much of a risk you are with potentially dying early — but they also want to know how you handle credit. Some companies will use this credit information to assist them determining life insurance premiums.

    Why do life insurance companies check credit?

    After you submit your life insurance application, the underwriting process begins. This process includes examining your lifestyle and health details.

    Part of this process includes using third-party information resources that shed light about your current and past medication use, driving records, criminal history, credit attributes, and any other life insurance companies you’ve applied with. They’ll also ask you questions about your lifestyle, hobbies, and occupation

    The life insurance company will analyze information to see if they have to get additional details. They may need to get clarification about your finances, health or lifestyle. 

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    What are the chances they will check my credit?

    As previously mentioned, your credit record is just one of many resources that companies can use to learn more about the risks you may pose them. More and more companies are using technological advancements to analyze data and evaluate these risks. With these technologies, the more data the better. It provides them the ability to improve their predictive algorithms and models. This ultimately results in them being able to conveniently offer more policies to consumers without requiring a medical exam.

    In a 2017 survey conducted by LIMRA, life insurance companies used the following data when evaluating applicants:

    • LexisNexis Risk Solutions was implemented for 28% of applicants by using analytics and predictive modeling.
    • Credit records were used for 18% of the applicants
    • Credit based scores made by TransUnion were used on 8% of applicants
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    As you can see, it isn’t very likely that your credit score will be checked when you apply for life insurance.

    Can my credit score affect the price of life insurance?

    It can, but usually only under specific conditions. When analyzing your finances during underwriting, the insurer will want to know your credit attributes, not so much your credit score.  The #1 reason or credit attribute that life insurance companies find most concerning are bankruptcies

    A life insurance company can look at a bankruptcy as poor financial decision making. It can even be an indication that there are medical problems since some bankruptcies are because of medical bills. Now back to the original question: Can your credit score affect the price of life insurance. Can it determine if I’m approved or declined?

    Not usually, but it can!

    Even though life insurance companies may look at your credit history, they usually don’t go through the trouble unless a red flag pops up on your application that makes them want a closer look. The red flag that is most common is filing for bankruptcy. 

    For example, depending on the type of policy you’re applying for — if you filed Chapter 7 within the past 12 months, you’ll typically get declined automatically with all companies. There is usually a waiting period of 12 – 24 months that life insurance companies require after a bankruptcy has been filed.

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    Your premium could be affected depending on the company you apply with once the waiting period has passed. If a life insurance company ever has to review your credit history they will have to tell you. You can always check in with your resident state’s department of insurance to understand what your state’s laws are regarding how life insurance companies are able to use your credit detail during underwriting. 

    What factors will affect my life insurance premium?

    While life insurance companies will look at your credit score to get an idea of your overall financial health. So if you’ve experienced something significant like a bankruptcy it might throw up a red flag.

    However, they’re more concerned about your health and if you live a high risk lifestyle. Here are the major factors that will influence your life insurance premium:

    1. Policy Type: The type of life insurance policy you buy will be a major factor in what you’ll pay for coverage. Cheap term life? Expensive whole life? There are many types of coverage with varying costs.
    2. Coverage Length: If you buy a short 10-year term, it will cost significantly less compared to a whole life policy that covers your for your entire life.
    3. Face Amount: The more life insurance coverage you buy the more expensive.
    4. Health: This is usually the most complicated and confusing for shoppers. Your specific health details may make your policy more expensive compared to if you didn’t have those health issues. Your family history is a factor too.
    5. Lifestyle: Do you have a dangerous occupation or hobby? Do you have any DUIs or motor vehicle violations? These can increase your rates.
    6. Age: Life insurance rates by age is huge.The older you are the more expensive the policy becomes.

    Credit Scores Affect Life Insurance Premiums

    The bottom line is that it’s possible — but unlikely. Unless you’ve filed for bankruptcy, it’s very unlikely that your life insurance premiums will be affected by your credit score. Your age, health, and lifestyle are much bigger factors in what you’ll end up paying for your policy.

    Michael Quinn

    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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